Solar power project raises question addressed by courts more than 100 years ago: Just what is a public utility?

Wisconsin courts are likely to face a question addressed more than 100 years ago: Just what is a public utility?

That question is at the heart of a dispute between Eagle Point Solar and We Energies involving a project to install solar panels on six buildings for the City of Milwaukee. And the answer eventually could determine whether government and nonprofit entities have an additional way to pay for solar power projects.

Eagle Point, a company based in Dubuque, Iowa, saw its solar project for the city scuttled last year when We Energies would not allow the project to connect to the utility’s system.

We Energies contended that the project was illegal because Eagle Point initially would own most of the project and therefore was a public utility under state law.

That would prohibit Eagle Point from supplying electricity to one of We Energies' existing customers and would force Eagle Point to be regulated like a monopoly utility.

“If I lose, I’m taking it to court,” said Barry Shear, president of Eagle Point.

He expects We Energies to do the same if it loses.

Eagle Point faced the same problem in Iowa and eventually prevailed in a lawsuit that went to the Iowa Supreme Court.

“We are taking the same strategy we took in Iowa,” Shear said.

Under its agreement with the City of Milwaukee, Eagle Point would have owned roughly 80 percent of the solar project and the city would have owned the remainder.

Eagle Point would have installed and maintained the solar panels and other equipment while the city would have bought the power at a fixed rate. The city also would have made quarterly payments for 25 years to buy the project, with an option to buy it after seven years.

The company was working on similar projects with municipalities and government entities in Wisconsin, Shear said, and those now are on hold.

“This basically affects every municipality in the state,” he said.

The case could determine whether companies such as Eagle Point can own solar projects that provide power for cities, counties, school districts, universities, health systems and other nonprofit entities.

The benefit to these nonprofit entities of doing business with a company such as Eagle Point is that the company can take advantage of a 30 percent tax credit for solar projects and then can pass along part of that savings. The nonprofits do not pay taxes and therefore cannot access the credit on their own.

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Renew Wisconsin, which promotes solar and other renewable energy projects, and the Environmental Law & Policy Center, an environmental advocacy group in the Midwest, agree that the issue affects more than the City of Milwaukee and plan to intervene in the case.

“More financing options will allow solar to be more widely adopted throughout Wisconsin, which is a good thing from our perspective,” said Tyler Huebner, executive director of Renew Wisconsin.

The Environmental Law & Policy Center and Renew Wisconsin contend that We Energies’ position is illegal.

We Energies, not surprisingly, sees the issue differently.

“We think the law is really clear on this issue,” said Brendan Conway, a spokesman for WEC Energy Group, the parent company of We Energies.

Conway noted that We Energies’ regularly allows solar projects to connect to its system.

Those projects are owned by the customer — not a third-party.

The PSC has taken the position that it can allow third-party ownership of solar projects on a case-by-case basis.

In its petition before the PSC, Eagle Point cites legal cases going back to 1911 and 1924 that determined an entity is not a public utility — and therefore doesn’t violate state law — if it didn’t provide power to “the public.”

Eagle Point’s project with Milwaukee was specifically designed to generate power only for the city buildings, Shear said, and the company’s agreement is a private transaction.

Brad Klein, a lawyer for the Environmental Law & Policy Center, contends that long-standing case law in Wisconsin supports Eagle Point’s position that it is not a public utility.

“The Wisconsin law is much stronger on this point than even Iowa law,” said Klein, who was involved in Eagle Point’s successful lawsuit in that state.

Third-party ownership of solar projects is allowed in Illinois, Michigan and Ohio, he said, while the law is somewhat ambiguous in Minnesota.

“You see how Wisconsin is isolated on this issue,” Klein said, “and that should be a concern to the people of Wisconsin and its leadership."

Companies such as Eagle Point that would own solar projects and sell electricity to a specific customer would compete directly with a We Energies’ pilot program approved in December by the PSC.

Under the pilot program, known as Solar Now, We Energies will pay businesses, municipalities, school districts and nonprofit organizations for the right to install its own solar panels on the roofs of their buildings.

We Energies has pressed the City of Milwaukee to participate in that project and contends that it would be less expensive than the project with Eagle Point.

But We Energies also has a competitive advantage: The cost of the Solar Now program would be passed onto all of its customers — not just the customers who receive the monthly payments.

The utility also would earn a profit, or return, on the project for the next 30 years.

Conway, the spokesman for We Energies’ parent company, said the additional generating capacity would be no different than other investments in its system because it would benefit all of its customers.

The Environmental Law & Policy Center does not oppose utilities’ experimenting with different ways of adding solar power to their systems, such as We Energies' Solar Now program, Klein said.

“The problem here is they are not presenting this as an additional choice for customers,” he said. “They are presenting it as the only choice.”

Laws defining what is a public utility were adopted to protect the public from monopolies, Klein said. We Energies now seeks to use the same laws to protect its monopoly.

That is one of Renew Wisconsin’s concerns.

“The more actors operating in this space will increase competition and drive down cost,” Huebner said.

But it also increases the competitive threat that utilities will face as the price of solar power falls and more customers install solar panels. Every rooftop solar project means less revenue and profit for We Energies and other utilities.

For now, the City of Milwaukee plans to install solar plans on three libraries that were part of the planned project with Eagle Point.

The city will contract will Eagle Point for the installation and will use solar panels the company ordered for the initial project.

Installing solar panels on the three libraries will cost $419,000 and is projected to produce $35,000 in savings in the first year, said Erick Shambarger, the city’s director of environmental sustainability.

The city has set out the goal to get 25 percent of its electricity — about 15 megawatts — from renewable energy by 2025. But it also doesn’t want to borrow heavily to achieve that goal. And it is open to working with We Energies and participating in its Solar Now pilot program.

Through the Solar Now program, for instance, the city would not be limited to putting solar panels on rooftops and could be put them on vacant city property.

The city’s plan going forward is to pay for some solar projects from city funds, work with We Energies and work with third-party developers such as Eagle Point if possible.

“My approach is ‘D’ — all of the above,” Mayor Tom Barrett said.

He also said that the city would not have entered into the contract with Eagle Point if it thought third-party ownership of solar projects was not good public policy.

The question is whether it is legal in Wisconsin, and what the PSC and ultimately the courts decide will affect more than Milwaukee.

“This is a big issue — a big economic issue for all parties,” said Shear, of Eagle Point. “It needs to be formally adjudicated and decided.”